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There is a lot of cash still floating around. It's not all bad.

by hos234 7y ago

czechdeveloper 7y ago
I think issues is that it's artificial cash. A lot of people expected inflation with newly printed money (central banks poured ridiculous amount new money in economy after 2008), but it never arrived. Because that money never found a way from investment to consumer goods, so for normal people the inflation is pretty standard. Except of prices of housing, which is also an investment asset. Inflation in investment assets is quite larger and we consider it "economic growth".
- eru 7y ago
  The Feds interest on excess reserves kept the money out of circulation.
- hos234 7y ago
  If you are starting a business/expanding ops etc it's not complicated to raise cash today.
hef19898 7y ago
The amount of free floating cash is the problem if you ask me. All that money wants to go somewhere, so it is creating bubbles and going into stuff like WeWork.
- randomsearch 7y ago
  Could this be a consequence of inequality? Perhaps an individual can now hold a large proportion of the wealth, but without the quality/volume of ideas or capacity to use that wealth.
tarsinge 7y ago
Is there an ELI5 of why all this cash doesn’t find its way to the economy (and that we get housing and companies valuation bubbles instead of inflation, with salaries stagnating for more than a decade)?
- throwaway1777 7y ago
  Trickle down economics is a lie. Quantitative easing is so far removed from salaries. It ends up just creating more capital for banks, which they invest into assets (companies and properties being two asset classes) or use as liquidity. Labor isn’t really in the picture at all except that companies which use less of it can be better assets to invest in.
- eru 7y ago
  The Fed's interest on excess reserves (IOER) keeps a lot of money there. The graph https://fred.stlouisfed.org/graph/?g=pB2X https://fred.stlouisfed.org/graph/?g=pB2X shows that the IOER was regularly above the effective federal funds rate. That means, banks made more money parking their money at the Fed, effectively removing it from circulation; than they could make holding bonds. When a bank holds a government bond, someone else in the economy has to do something with the money they paid for the bond. In contrast, excess reserves might as well not exist as far as the rest of the economy is concerned. https://fred.stlouisfed.org/graph/?g=pB2X https://fred.stlouisfed.org/graph/?g=pB2X shows the absolute amount of excess reserves. IOER explains a big part of the puzzle you found without invoking any conspiracy theories or sly remarks about 'trickle down economics'. See https://www.cato.org/publications/working-paper/floored-how-misguided-fed-experiment-deepened-prolonged-great-recession https://www.cato.org/publications/working-paper/floored-how-... for a broader discussion.

There is a lot of cash still floating around. It's not all bad.

by hos234 7y ago

There is a lot of cash still floating around. It's not all bad.

I think issues is that it's artificial cash. A lot of people expected inflation with newly printed money (central banks poured ridiculous amount new money in economy after 2008), but it never arrived. Because that money never found a way from investment to consumer goods, so for normal people the inflation is pretty standard. Except of prices of housing, which is also an investment asset. Inflation in investment assets is quite larger and we consider it "economic growth".

eru 7y ago
The Feds interest on excess reserves kept the money out of circulation.
hos234 7y ago
If you are starting a business/expanding ops etc it's not complicated to raise cash today.

hef19898 7y ago

The amount of free floating cash is the problem if you ask me. All that money wants to go somewhere, so it is creating bubbles and going into stuff like WeWork.

randomsearch 7y ago
Could this be a consequence of inequality? Perhaps an individual can now hold a large proportion of the wealth, but without the quality/volume of ideas or capacity to use that wealth.

tarsinge 7y ago

Is there an ELI5 of why all this cash doesn’t find its way to the economy (and that we get housing and companies valuation bubbles instead of inflation, with salaries stagnating for more than a decade)?

throwaway1777 7y ago
Trickle down economics is a lie. Quantitative easing is so far removed from salaries. It ends up just creating more capital for banks, which they invest into assets (companies and properties being two asset classes) or use as liquidity. Labor isn’t really in the picture at all except that companies which use less of it can be better assets to invest in.
eru 7y ago
The Fed's interest on excess reserves (IOER) keeps a lot of money there. The graph https://fred.stlouisfed.org/graph/?g=pB2X https://fred.stlouisfed.org/graph/?g=pB2X shows that the IOER was regularly above the effective federal funds rate. That means, banks made more money parking their money at the Fed, effectively removing it from circulation; than they could make holding bonds. When a bank holds a government bond, someone else in the economy has to do something with the money they paid for the bond. In contrast, excess reserves might as well not exist as far as the rest of the economy is concerned. https://fred.stlouisfed.org/graph/?g=pB2X https://fred.stlouisfed.org/graph/?g=pB2X shows the absolute amount of excess reserves. IOER explains a big part of the puzzle you found without invoking any conspiracy theories or sly remarks about 'trickle down economics'. See https://www.cato.org/publications/working-paper/floored-how-misguided-fed-experiment-deepened-prolonged-great-recession https://www.cato.org/publications/working-paper/floored-how-... for a broader discussion.